Intellectual Property (IP) Valuation
Intellectual property protects intangible property resulting from human creativity or invention. In a world driven by technological advancement and commercialisation of creativity, adequately and efficiently protecting Intellectual Property is an inevitable tool for enhancing value of these assets. Value creation, differentiation, and growth are the ultimate goals of any management team, and therefore objectifying such value is important for better appreciation of the contribution of Asset/IP Asset, for instance, and decide the manner in which the asset creation and monetization should be configured. At the same time, significant crises in IP ecosystem include actions pertaining to infringement, passing off, ambush marketing, counterfeiting, misuse of personality rights and unauthorised technology transfer by third parties, which requires proper strategies for monitoring, enforcement, and obtaining injunction against such infringement instances.
Value of an asset is determined with a goal to objectify the contribution and worth of the IP in context, which can further help evaluate the ability to drive out competition and move forward in the market with minimised intervention. IP assets have an immense quantifiable value that results in significant economic benefit to the owner, and can add value to other associated assets. However, derivation of value from an IP Asset is not a simple task, and many carefully calculated steps go into its determination. Value Derivation can be through direct exploitation or the sale or licensing of the respective IP. Even though indirectly, value can also be added/impacted by minimising rivalry, mitigating negotiation power of consumers, reducing threat of substitutes, among other similar parameters.
IP Valuations are necessary in several scenarios that may include, but are not limited to, investment analysis, licensing deal, sale/purchase transaction, documentation purposes, IP contribution assessment, in-house estimation of the worth of created IP, capital budgeting, merger and acquisition transactions, financial reporting and taxable events, bankruptcy and litigation proceedings. Five pillars of IP Management that include IP generation, IP portfolio management by policing generation and transfer of IP assets, valuation of IP assets and IP capital, comprehensive analysis of trends and shortcomings of the IP Management, and strategic improvisation policy that transforms the status of IP assets into inevitable support of the organisation.
However, an exemplary hindrance to IP valuation being considered of significant importance is the lack of appreciation of practical methods of valuing them, particularly at embryonic stages of their life circle and more so under conditions of uncertainty about their prospects. Lack of practical valuation methods under such conditions leads to inaccurate and sometimes bad decision-making when managing an IP portfolio.
Intellectual Property Management
Intellectual Property management is a compilation of different processes, including Intellectual Property policy formulation and implementation, Intellectual Property valuation, and Intellectual Property Audit. Better Intellectual Property management can improve Intellectual Property asses, not only by proper enhancement and enrichment of Intellectual Property assets, but also by identifying blind spots/white-spaces in the Intellectual Property assets and utilising potential resources in a more meaningful approach. We, at IIPRD, through our diligent Intellectual Property Management exercises and offerings stipulate enhanced value to the IP portfolio by providing higher priority to these intangible assets by adding/associating objective and reasonably accurate commercial value to the support.
Due Diligence Practices
Intellectual property strength and weakness of any organisation can be quickly evaluated from Intellectual Property portfolio, which is a driving factor in corporate transactions. Extent of opportunity, authenticity, and implementation is determined by Intellectual Property due diligence, making it a fundamental step to be carried out. Checklist for Intellectual Property Audit can include several factors such as the nature of corporate transaction, valuation and evaluation of Intellectual Property assets.
We at IIPRD, through our due diligence practices, begin with gathering data regarding different aspects of the Intellectual Property assets, such as intellectual capital, sponsorship, financial requirements, and human capital and assess statistics for its strategic management. Further, rework and modification of the work is also done by compiling data regarding potential resources of IP. Additionally, inventory and data analytics are carried out to give a clear picture of the extent of Intellectual Property resource and evaluate potential financial value of the Intellectual Property assets based on various factors such as the magnitude and importance of further modification, improvement, relevance in the industry, innovative applications etc. This is one of the most vital steps in the process of due diligence.
We at IIPRD carry out the IP valuation process through a dedicated team of professionals who are skilled in the art to determine an objective value for one or a combination of IP assets and recommend strategic decisions based thereon. Intellectual Property due diligence assessment of quantity and quality of the Intellectual Property assets of the organisation helps in further determination of whether the customer’s organisation has the potential for future expansion and advancements.
We at IIPRD undertake IP valuation in two different modes. In case the objective of valuing an IP is to get a monetary estimation of the worth of the Patent/Trade Secret/Trade Mark for In-house use, IIPRD executes Valuation exercises by going through the concerned portfolio of Technologies/Patents/Trade Marks and the level of protection they have received through registered IPs. To do this, IIPRD conducts a comprehensive technical, commercial, and economic assessment to evaluate the monetary worth of the IPs. To perform our valuations, IIPRD has developed a proprietary IP valuation model (based on Income/Royalty based Approach using Cash Flow Estimations in conjunction with cost-based, market-based, and relative similarity to allied financial transactions that have taken place in the same subject matter/technical domain) that, based on accurate parameters including the discount and growth rates, useful economic life of the IP, prevalent royalty rates, historical data, projected revenue figures, estimated market capture, and profitability, provide an objective and justifiable valuation of the concerned IP, thereby removing much of the subjectivity involved in the exercise.
In case, on the other hand, the objective of valuing an IP Portfolio is to use the IP in-house and/or license it nationally/internationally to a third party, IIPRD does a comprehensive commercial evaluation of each Patent/Technology/Know-how/Trademark and values it keeping Licensing/Assignment as the primary objective by undertaking Freedom to Operate Analysis, evaluating commercial opportunities, and accordingly valuing each Technology/Patent/Trade Mark. IIPRD’s due diligence process, in case of mergers and acquisitions, considers valuation of IP assets as an essential criteria for the growth of corporates, based on which the team gathers information about different Intellectual Property assets of an organisation along with identifying agreements, if any, that pertain to any licensing, assignment, or a third-party IP transaction. The due-diligence and valuation process also encompasses review of transactions associated with parties and pertaining to ownership and unrecognised IP assets. Intellectual Property analysis can thereafter be carried out to analyse the trends resulting from the data collected by the inventory of the Intellectual Property assets, and structure the Intellectual Property portfolio methodically based on said trend analysis.
We at IIPRD also help end-to-end Out-Licensing of Technologies to one or more potential licensees by assisting Licensors in identifying potential licensees, demonstrating value proposition from concerning technologies, and negotiating with interested licensees to finalise a term sheet and respective licensing agreement so as to effect the deal. IP valuation modus operandi also suggests one or more strategies that customers can adopt relating to prioritisation of potential licensees, deciding on the best mode of exclusive/non-exclusive licensing and assignment, along with decision-making with respect to the License Fees, Royalty payment, and other terms to commercialise the technology.